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8 Cards in this Set
- Front
- Back
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What were the origins of the field we now know as “natural resource economics”? In what portion of the broader scope of economics did the subject arise, and how has the focus of the field evolved over the years? |
-Natural resource economics grew out of programs in agricultural economics, which was traditionally part of the portfolio of Land Grant universities charged with the practical and technical, rather than liberal arts, education of the masses (as opposed to the elites of U.S. society). Forestry economics was an outgrowth of the farming of other crops; fisheries economics was an outgrowth of the farming of livestock. In economics, the “land” of “land, labor, and capital” is generally construed broadly enough to include all natural inputs to production
-In the early years, natural resource economics focused on the task of improving the efficiency and profitability of small businesses like family farms and owner-operated fishing boats
-as family farming was replaced by mechanized industrial agriculture conducted by large multinationals having their own research departments, agricultural economics departments evolved into agricultural and resource economics departments and the focus of research shifted to the public goods aspects of resource management. Specifically, natural resource economics came to focus more on the management of natural resources to maximize net social benefits, rather than private profits from commercial exploitation. Greater attention came to be devoted to the negative externalities associated with forestry practices, fishing, and mining, and the scope of “natural resources” was expanded to include other types of natural resources, including biodiversity, climate |
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We covered the issue of valuing reductions in human morbidity and mortality, since these physical benefits constitute the largest single share of benefits estimates in many environmental benefit-cost calculations. In revealed-preference wage-risk studies, how is the trade-off between money and risk established? What type of risk is most commonly valued? Is this the appropriate type of risk for most environmental problems? Why or why not? |
-Wage-risk studies regress observed wages on actuarial risks of “sudden death in the current period in workplace accidents.” These models also control for other job characteristics and worker characteristics, including industry and occupation. The implied increment to the wage for small differences in risk is the main ingredient in a calculation of the implied “value of a statistical life.” Most environmental risks are not “sudden death now.”
-Many of the health problems caused by environmental risks involve long periods of latency, followed by some period of sick-time, perhaps followed by recovery or remission (or not), and then some number of lost life-years at the end of life |
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What distinguishes “dynamic” efficiency from “static” efficiency? Why is there always a degree of controversy about “the” discount rate to use when assessing the dynamic efficiency? Are economists confident that a net benefit accruing T periods in the future can always be converted into an equivalent current-period net benefit by multiplying by ? Why or why not? |
-Static efficiency is said to have been achieved if the optimization problem starts afresh in each period, so all that is necessary is to expand production/consumption as long as the marginal benefits of an extra unit exceed the marginal costs of an extra unit. When marginal benefits equal marginal costs, we maximize overall net benefits associated with a particular activity.
-Dynamic efficiency is relevant when decisions in one period affect opportunities in a subsequent period, as in the case of exploiting an exhaustible mineral. In that case, we seek to maximize the present discounted value of the stream of future net benefits. Thus discounting is required. The discount formula shown is merely mathematically convenient
-It has the basic necessary property that net benefits accruing sooner will be discounted less, and net benefits accruing later will be discounted more, but there is plenty of evidence that this standard formula isn’t an exact match for the choices that are derived from actual people’s time preferences for present versus future consumption. |
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Environmental advocacy groups are often opposed to benefit-cost analysis (BCA) of proposed environmental policies. What are they afraid will happen, if a BCA is conducted? What is the proper role of BCA from the perspective of economists? Be sure to mention what BCA cannot do, and why. |
-Environmental advocacy groups sometimes fear that benefit-cost analysis will be used as the sole criterion for deciding whether to go ahead with a proposed reallocation of society’s resources
-From the perspective of economists, the proper role of BCA is to inform decisions, not to make decisions
-BCA in the US tends to assume that the marginal utility of a dollar worth of benefits is the same for everyone. It is pretty clear that this is not supported empirically, but no assumption other than “equal marginal utility of money/income” is any more supportable than that assumption
-BCA can be used to assess the “efficiency” of a proposed policy (reallocation) but it cannot help us understand whether we like the distributional (equity) consequences of the policy. Benefit-cost analysis typically focuses on the overall net social benefits, rather than the distribution across individuals of individual net benefits from a policy |
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Why are we spending the first few lectures in this course worrying about how to measure the demand for non-market natural resources and environmental goods? Explain. |
We need to worry more about the public goods aspects of natural resources, and externalities created by resource exploitation or consumption. Often, these are non-market effects, where there is no direct evidence in the form of market prices to help us measure the benefits or costs associated with proposed policies.
For example, instead of thinking about how to maximize profits from hydraulic fracturing to extract natural gas, we worry more about how to assess the negative externalities for the affected communities (but also sometimes the economic impact if increased productive activity, since that is still part of the realm of economics in general) |
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The economics profession has always been perfectly comfortable with the idea of eliciting people’s values for non-market resources using stated preference survey methods. True, False, Uncertain? |
-False. Economists strongly prefer the evidence in actual market choices by individuals, where they actually have to give up money to get a good
-There has always been a strong preference for revealed preference data, rather than stated preference data. Stated preference data involves surveying households and asking them hypothetical questions about what they would choose if they had an opportunity to make a choice to give up other goods and services to protect or enhance some non-market environmental resource
-For non-use demands for environmental resources, there is of course no market evidence. Then the choice becomes one of “no information” versus “stated preference information only” about the tradeoffs people in the general population might be prepared to make to preserve or enhance environmental resources. Considerably more research creativity can be necessary to glean demand information for fundamentally non-market public goods |
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Why were there no major lawsuits, prior to the litigation surrounding the 1989 Exxon Valdez oil spill, where attorneys and legal experts argued about estimation of “lost passive use value” as a component of compensatory (economic) damages caused by accidents related to natural resource exploitation and use? In what sense did the Exxon case change the playing field for non-market resource valuation research? |
-Lost passive use value was not considered to be admissible until the “Ohio” case early in 1989. That case established a legal precedent that natural resources could have legitimate economic value beyond just conventional “use” values
-People who had been injured by harm to a resource that they did not actually personally use experienced a genuine loss of utility that was determined in the Ohio case to be legitimate grounds for a claim to compensation. Prior to the Ohio case, you did not have any legal standing to seek compensation for lost passive use value because only active users were deemed eligible for compensation |
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How do you find marginal net benefits (MNB)?
What about for a second period?
How do you solve for q* for the first period? |
1. MNB= MB-MC
2. MNB (plug in for # of periods - q into q)
3. Set equal MNB_1= MNB_2 |
